It's interesting to see this myth take root even in the mind of reasonable people. I guess it shows the power of repetition - you repeat a ficitonal backstory enough that people want to believe, and they end up believing it.
What part of it is untrue? a. That federal laws were signed that were specifically designed to reduce loan qualification standards so that those who could not obtain a loan could now do so, b. That the law gave mortgage companies the excuse to come up with "innovative" loan products (ie LIBOR 6 month ARMs, "liar's loans," etc), c. These loans were very quickly sold in bunches due to the high risk of default, d. Due to the high risk of default, these loans were packaged into securities to spread the risk around (and make money by duping investors), or e. The reduction in capitialization requirements for Fannie and Freddie resulted in those organizations buying a lot of these loans and sticking the taxpayers with the tab for the en masse default and Fannie having an REO inventory of roughly 129,000 properties.
